Last week, I talked about the need for insurers to align business goals with cost reduction strategies. This week, I will provide a more detailed discussion of the new normal, and how to balance short- and long-term goals to facilitate cost reduction and investment while also preparing a business for new opportunities.

Balance short- and long-term goals

Establishing a cost reduction strategy means accounting for short- and long-term goals. Insurance leadership must re-evaluate business goals for the next 2–5 years, by asking questions like:

  • Where do I see the business competing in the next 2–5 years?
  • How do I see the business competing in the next 2–5 years?
  • Do I have the right set of product services, geographies and capabilities to align with these objectives?
  • How should the business be structured to be able to achieve these objectives?

Answering these questions provides the lens through which cost reduction activities can be viewed. They may line up nicely—or, if they do not, this audit provides insight into the decisions and actions that need to follow.

The importance of an integrated, flexible operating model

An integrated and flexible operating model is the backbone to a successful insurer. It establishes the who, what, when, where and how of the business’s operations, answering such questions as:

  • What products do I sell?
  • What markets do I sell them to?
  • How do I service those products over time?
  • Where are my people located?
  • How are my people enabled through technology?

An industrialized, or flexible, operating model provides service at the highest level, at the most appropriate unit cost per transaction. It means knowing what it costs the business to sell a lower-cost personal line through a direct channel. Conversely, it means knowing what it costs to put the most skilled resources on an advisory-based life product to provide an appropriate level of service and engagement. And, it means knowing those costs and selling the products at an appropriate cost to yield the correct rate of return.

Further, both streams of engagement co-exist within a single, flexible operating model. Businesses that succeed over time are the ones that can adjust their products and offerings on demand, and in anticipation of changes to the market.


Strategic cost reduction requires a business to look at its short- and long-term business goals, and to align cost reduction with these goals. A flexible operating model is a key component of implementing these strategies.

Next week, I will discuss four key actions that insurers can adopt in their cost reduction strategies, and what challenges to expect during adoption.

Has your business aligned its cost reduction strategies with business goals? What success or challenges came out of this?

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